Rolls-Royce becomes third company to enter UK DPA

As you may have seen, the latest UK Deferred Prosecution Agreement (DPA) was approved today by Sir Brian Leveson QC at Southwark Crown Court, sitting at the Royal Courts of Justice.

The facts

Following the largest investigation since its inception, the Serious Fraud Office (SFO) has entered a DPA with Rolls-Royce plc and one of its subsidiaries in respect of six charges of conspiracy to corrupt, five charges of failure to prevent bribery and one charge of false accounting. These charges relate to payments made by the civil aerospace, defence aerospace and energy businesses of Rolls-Royce to intermediaries in seven overseas markets (Indonesia, Thailand, India, Russia, Nigeria, China and Malaysia) dating back to 1989. The payments made related to the award of large value contracts which, taken together, ultimately earned the business over £250m in gross profit Whilst it was the SFO who first approached Rolls-Royce in 2012 regarding concerns about its civil aerospace business in Indonesia and China, the much wider issues underpinning the draft indictment were uncovered and reported to the SFO only through Rolls-Royce’s proactive internal investigation. Its co-operation in that regard was termed “beyond exemplary” by the Judge.

The DPA, which has a duration of five years, means that Rolls Royce will not be convicted of the charges contained in the indictment in the UK, as long as it complies with its terms. These include:

• A £239,082,645 penalty plus interest, under a schedule lasting up to five years
• disgorgement of £258,170,000 in profits
• payment of the SFO’s full costs, amounting to £12,960,754
• continued cooperation with the relevant authorities in all matters relating to the conduct alleged, including the investigation and prosecution of individuals, and
• at its own expense, completing a compliance programme following the recommendations of several independent reviews commissioned by the business during the course of the investigation.

Why was a DPA “fair, reasonable and proportionate”?

The DPA was considered by Sir Brian QC to be appropriate in the circumstances as a result of:

• Rolls Royce’s extensive co-operation with the SFO investigation
• its commitment to an improved compliance culture since the offending was identified, and the extensive steps already taken to enhance its ethics and compliance procedures
• changes in the management and culture of the business, and
• that the impact of a prosecution and conviction, which would trigger mandatory debarment from EU public contracts, would be disproportionate.

The fine payable by Rolls-Royce was discounted by 50% from that which would have been imposed after a contested trial as a result of its “extraordinary” co-operation with the SFO investigation. This is greater than the maximum discount of 33% available for an early guilty plea, which, prior to the case of XYZ Ltd, had been thought also to be the maximum available discount under a DPA. This second case to award a discount of greater than 33% signals that deeper discounts are available for DPAs, and not just in exceptional cases. This issue is amongst those to look out for in 2017 and was discussed in our article “What to look out for in 2017 - Deeper discounts for DPAs?”.

In its announcement to the market on Monday 16 January 2017, Rolls-Royce further revealed that, in addition to the DPA with the SFO, it had entered a DPA with the US Department of Justice (DoJ) and a Leniency Agreement with Brazil’s Ministério Público Federal (MPF). Pursuant to these agreements, Rolls-Royce will pay US$169,917,710 to the DoJ and US$25,579,179 to the MPF, resulting in a total payment of approximately £671m across the three prosecuting bodies. This coordinated approach to settling charges of bribery marks a significant step in the use of DPAs, both in the UK and internationally.

Notably, this DPA - like those entered by ICBC Standard Bank and XYZ Ltd - relates to charges of failure to prevent bribery under section 7 of the Bribery Act 2010 (together with charges of conspiracy to corrupt and false accounting that concern pre-2011 conduct). The 2012 Government consultation on DPAs stated that the current law of corporate criminal liability (which, in general, requires prosecutors to show guilt in the “directing mind and will” of a company) undermines the effectiveness of the DPA regime because offences other than section 7 of the Bribery Act 2010 lack a reasonable threat of prosecution. In recognition of the possible hurdles for corporate prosecution, the Ministry of Justice has recently published a call for evidence on corporate liability for economic crime.